Obscure Rule Affects Disney Finances

December 12, 2004|By Jerry W. Jackson, Sentinel Staff Writer

In the world of corporate finance, Sarbanes-Oxley has been described as the accountants' relief act of 2002.

Firms that audit companies' books have been scrambling to add staff because of the additional work prompted by the federal legislation, which was designed to hold companies and executives more accountable.

But there is another, less well-known rule change adding to the work of accountants and chief financial officers in the wake of the Enron accounting scandal. It's called Fin 46, or Fin 46R in the revised version of the January 2003 rule.

Fin 46R is a rule developed by the Financial Accounting Standards Board, the industry body that tells U.S. corporations how they must record revenue, profit and the other details that go into quarterly and annual reports to the Securities and Exchange Commission.

The board, known as FASB, has instructed companies to take a harder look at what entities they fully disclose on their books. The new rule states that, even if a company is not the majority owner of a business or unit but absorbs a majority of losses or returns or has "the ability to make economic decisions" about the entity, it should consolidate it on its books.

Disney has decided that it is the primary beneficiary of Euro Disney and its new Hong Kong Disneyland, which opens in 2006, even though it does not hold a majority equity stake in them. Tokyo Disneyland, in which Disney holds no equity, and other Disney minority-owned companies, such as A&E Television, Lifetime Television and E! Entertainment Television, still remain "off the balance sheet."

Hundreds of companies are affected by Fin 46, said Colleen Cunningham, president of Financial Executives International, a trade group representing corporate financial managers.

"Disney is not alone," Cunningham said. "The scope has really gone beyond what we all thought it would originally."